There were many debates about the potential benefits of blockchain technology to improve the world of payments – Especially international payments.
This is a business where many different parties need to reach consensus to route the payments, perform currency renovation, and deploy and manage liquidity in different jurisdictions, all subject to assorted regulatory constrictions.
One of the main issues blockchain can tackle is the high complexity of payment networks, due to the fragmentation of the financial industry itself, which makes it ineffectual for individual banks to deal directly with all other banks on the planet.
For example, when a bank gets a payment instruction from a client, it needs to find a correspondent bank that is eager to take the client's funds and terminate the payment locally at the receiving bank. And in order to do so, the correspondent bank needs to have a nostro or vostro account with the receiving bank (or with another correspondent bank that has access to the receiving bank, thus adding an extra hoop), ideally with enough pre-funded liquidity to complete the payment on the client's behalf.
Blockchain's big promise is providing that exact single version of the truth that is missing in the picture above.
Indeed, a true, smart contract-enabled blockchain provides a single ledger and transactional engine where balances can be maintained and transacted upon, and where payments can live as single, common digital objects that make messaging and reconciliation unnecessary.
By using smart contracts, different parties can not only register tokenized funds and payments, but they can also set in stone the rules applying to all aspects of the end-to-end payments processes, eliminating errors and misunderstandings, increasing transparency and auditibility, and reducing fraud and cyber risk. The result: Everything on the same ledger, with the same smart contracts for all, and with the same computational engine, with no possibility of errors or tampering.
Now, most of the (so-called) decentralized solutions being proposed these days often focus on improving payments processes either by digitizing the messaging layer described above or, even better, eliminating it by creating single, digital representations of payments that can enforce transactions on proprietary ledgers, connected to one another with some sort of inter-ledger protocol. This is indeed a significant improvement on today's message-driven payments processes.
There are proposals to use cryptocurrencies or unbacked crypto-assets to play this role, but this approach suffers from a number of limitations.
The market risk of such assets is quite difficult to hedge, due to significant volatility, and the total liquidity in circulation is tiny in comparison with what is needed in the market - a market which works quite well with a rather universal and hyper-liquid asset available today, the U.S. dollar.